Why Did Morgan Stanley Leave Broker Protocol?

Financial, Investing / Saturday, December 16th, 2017

The latest whirl of surprise shaken up the investment industry. The brokerage giant Morgan Stanley decided to leave the protocol. The impact of this exit on the investment industry and the overall investor is something that yet has to be seen. In this piece of writing, we are going to discuss the ripple effect the exit of the protocol will cause.

However, first let me explain what is a protocol and why is it that much significant in the investment industry? A protocol is the industry agreement that facilitates the entry and exit of the brokers in the investment industry.

This agreement came into existence in 2004, when the brokerage firms agreed with a mutual consent on the set of regulations and rules. The rules in the protocol were about the entrance and the existence of the brokers in different firms. According to this protocol agreement, the brokers’ rights were safeguarded if they switch between the companies.

However, with the recent announcement of the Morgan Stanley, the future becomes uncertain for the whole industry overall. The reason which the company stated for its existence is whole another story. According to Morgan Stanley, the protocol has become excessively polluted with loopholes and gamesmanship.

Now here comes the most critical question of the day, what would be the impact of this unexpected exit of Morgan Stanley has on the advisors and industry? Well, as far as the future of the advisors associated with the Morgan Stanley is concerned, it is alarming. Whether an advisor joined the firm 6 months ago or 5 years ago, they all joined the firm under the protocol. Now by the exit of the firm from protocol put their future in the industry in the hands of other firms in the industry. As the protocol no more shields the advisors, almost all of them are not pleased with the decision.

With its departure, the Morgan Stanley has joined hands with the other firms in the industry that are not the part of the protocol and that present strong litigation and arbitrations on leaving of advisors.  The non-protocol bound firs are more likely to be aggressive litigators when it comes to the advisors leaving the firm with the clients. See here the problems is brokerage industry is the sole industry that depends heavily on the advisor-client relationship. So most of the time when the advisor leaves a certain brokerage firm the clients go with them too. Moreover, the withdrawal of the Morgan Stanley from the protocol has caused a ripple or more likely a domino impact on the other firms of the industry. The regulators of the brokerage industry are worried about the future of the industry with the sudden shock and its subsequent seismic impact.

However, this litigation fear is not strong enough to hold the advisor from leaving the protocol, especially when the option of an independent space is present. The regulatory authorities are also considering a trend of independent advisors as the most anticipated one. Moreover, the option of joining RIA is the most viable option.